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Correcting Paul Krugman’s Austerity Chart For Monetary Effects Yields Very Different Results
Submitted by Ben Steil of the CFR Geo-Graphics blog
Correcting Paul Krugman’s Austerity Chart for Monetary Effects Yields Very Different Results
In two recent blog posts (1/6 and 1/7), Paul Krugman highlighted a chart he made that, he says, illustrates clearly the failure of “austerity” around the world. We reproduce it above on the left.
Krugman’s chart plots changes in real GDP against changes in real government purchases for 33 advanced countries between 2010 and 2013. The slope of the trend line (which Krugman does not draw) is clearly positive (with R-squared of 0.31), suggesting strongly that cutting government spending (during that period) reduced growth, and that raising it increased growth.
The problem with this figure is that it mixes countries that were able to use monetary policy with those that weren’t – such as those in the Eurozone or those with hard currency pegs. Referring to this problem, Scott Sumner recently asked on his blog: “Why do Keynesians show cross-sectional graphs of fiscal austerity and growth, mixing in countries that have their own independent monetary policy with those that do not?” Sumner’s point is that countries that have independent monetary policy can, in principle, offset fiscal drag with more accommodative monetary policy. Is he right?
On the right-hand figure above, we re-did Krugman’s chart for advanced countries with independent monetary policies. Lo and behold, Krugman’s spending-growth relationship collapses, as Sumner would have expected.
This is not to say that austerity is good. But it does undermine the empirical basis for Krugman’s claim that reducing government spending lowers growth, and that increasing government spending raises growth, at least in countries that can use monetary policy as well as fiscal policy.
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Krugman the Keynesian contrarian trying to re-inforce IS-LM curve ideals. Both regressions are in principle wrong as they make closed economy assumptions. Trouble is even ISXM and Mundell-Fleming make stupid assumptions too, so it's all a waste of time except for academics who want something to spout about.
Does anyone know how much this Bozo makes ? I have a feeling he is into cats
Fuck Krugman
Deserves to die a long painful death in Hell for the base evil wrongs he has perpetrated upon Humanity
Krugman belongs in a circus, right next to the dog-faced boy.
The "corrected" chart, clearly shows that government expenditures and GDP growth are in fact, negatively correlated, proving that the government spending multiplier is in fact, negative. Bigger goobermenit causes worse growth. Called inefficiencies, waste and bad juju. As well as something along the lines of Jesus' throwing the monied fucks from the Temple (Analogy is precisely accurate herein, as well.)
Like trying to convince a Classicist that Quantum Mechanics a superior theoretical and practical platform in site of the voluminous evidential proof that the Classicist will ignore. Especially when transformed onto an electronic universe paradigm, expanding the Quantum to the Macro, in large part....
But, who cares.
The Lunatic Fringe is Mainstream Here in the Theater of the Absurd and I am Beheld as a Nut Case Tin Foil Hat Conspiracy Theorist.
But for shits and grins, back to the Economic and Financial Sphere....
Hear ye hear ye ....
JGB 5 years today went 0% ytm.
Y'all gloom and doomers best getchur long dated yields locked in for the long haul.
Once you're in a deflationary environment, even 1% is gonna look like fun shit.
The 10 year is well on its way. Personally I recommend hookers and blow as a wise investment strategy......
Along with his butt buddies Koos and Keynes.
"so it's all a waste of time except for academics who want something to spout about."
All the high priests of ancient times, calling for sacrifices to angry gods and reading the entrails of goats morphed into what we call economists today.
Which is, of course, why I became an economist. It's all about the POWAH!
Green arrow.
Speaking of idiots...
There is great news on the global warming front. Only 6 (yes 6) gigatons of the 2.4 million gigatons of ice in Greenland melted last year. That pushes back the IPCC's 20 foot expected sea level rise to over 400,000 years from now...
http://www.arctic.noaa.gov/reportcard/greenland_ice_sheet.html
In the long run we are all wet.
Especially if we get Krugman's "everything plus the kitchen sink" in on the act.
Right, speaking of idiots...
The people who think global warming is a 'hoax' also tend to subscribe to Cheney's one percent doctrine about severe terrorist attacks.
Isn't there a one percent chance that climate change would fit this paradigm?
And what's the long term downside of addressing the climate, positively for once?
What clean air and water? What a disaster that would be!
Look, global warming is global problem that will not be fixed by governments. It'll be fixed, largely, through innovation by private interests. But this idea, that exists that climate change crusaders have any actual power in the world is laughable, and people who denigrate them are fools akin to being against the automobile and airplane a hundred years ago.
Seriously, all you morons can enjoy your 6 miles to the gallon and shitty water.
Unless they changed the scientific method since I went to school, the observable data suggests
a new ice age is more likely.
Are theorys no longer made from observing data, and then predicting outcomes, and only then
proven when the data matches ?
Old school I know. and agw is a political theory, not a physical one. may be even religious.
LOL, who needs data when we have models?
I love computer models, I can prove anything you want with a single dataset with some "minor adjustments".
Hey Einstein, you do know that an ice age is due to climate change, right? The warming of the planet causes polar caps to melt which will decrease the salinity of the oceans, which will slow down the ocean currents, which will eventually cause polar glaciers to advance. But I'm sure you and the other useful idiots knew all this.
Too bad ALL the AGW models failed to predict the last 15+ years of no surface warming. But you still believe, don't you? Youse gots to BELIEVE!!!
You're right..air temps have been flat since 1998. All of the "gains", if you will, have gone into the oceans, which presents a whole other set of issues.
But, again all of this is irrelevant. Because it really isn't about climate change. You just don't like the idea of a bunch of liberal scientists telling you how you should live your life in a more sustainable way, right?
Same thing with your useless automatic weapons. It's got absolutely nothing to do with common sense or data or facts. Nothing at all.
Automatic weapons have been outlawed for citizens since 1934 Einstein.Known as NFA - only an idiot wouldn't know that, or a fully indoctrinated lefty POS.
http://legal-dictionary.thefreedictionary.com/National+Firearms+Act+of+1934
Your stunning lack of knowing what you are talking about there gives me all kinds of confidence you have knowledge on anything you spew.
Let me guess your actual profile.
Late 30's
275-300 lbs
Balding
Ugly as fuck
Small hoard of guns
Pussy ass pickup truck.
Arkansas resident
Close?
The automatic weapons quip was hyperbole you fucking waste of life. You know, like being hungry enough to eat a horse...Wait you probably eat fucking horse! Sorry.
Sounds like what you would see when you look in a mirror. Not even close on any of them, though I'll take the late 30's ref as a compliment. When I was in my late 30's the US wasn't populated with momma's boy basement dwellers out of touch with reality like you son.
Keep guessing though, your stupidity is entertaining.
FYI - the picture is not me it's BOBO, from the hilarious finding bigfoot show. Wait, I'll bet that's one of your favorite 'documentaries' being all scientific and all.....LOL.
But, again all of this is irrelevant. Because it really isn't about climate change. You just don't like the idea of a bunch of liberal scientists telling you how you should live your life in a more sustainable way, right?
No, I just tend to think their claims that 'the science is settled' look a bit absurd given that surface temperatures failed to rise as they predicted.
But no, instead of admitting that their models (and ergo their science) have little predictive power, they're claiming their failures are irrelevant because... the oceans are warming. Supposedly.
Same thing with your useless automatic weapons. It's got absolutely nothing to do with common sense or data or facts. Nothing at all.
You'll have to remind me when I said anything about automatic weapons. Oh, that's right - I didn't.
Surface air? That's what you pulled out of your ass? You are embarrassing yourself. Science does not suit you.
Is that your idea of a rebuttal?
No wonder you've been stuck in Accounting 101 all these years.
But there was such a wonderful correlation ... until there wasn't ... and then you had to pretend a little bit ... ok, believe then ... quite a lot.
https://andthentheresphysics.files.wordpress.com/2013/11/fig3.png
It is religious:
Saudi cleric issues fatwa on snowmen
One of Obama's US Allies I believe.
who said that Koos, Minsky, or the light in his loafers Keynes? Surely you didn't come up up with that all by your left-wing propagandized self, did ya?
I didn't realize just admiting the possibility of climate change and saying that private innovation would be the ones to solve it made one left wing.
Seriously, dude....go eat Ayn Rand's pussy already. Ugly, disgusting people belong together.
Can we get a rebate from Gore?
The banksters need to repay us.
Anyone who has ever read Richard Ko or Hyman Minsky can all but tell that, everything else being equal, government spending is bad when things are going well in the economy. The opposite is true in a balance sheet recession.
For all you Austrians, feel free to down vote me with great alacrity.
Alaricity...whoah ez...on the big words there, chief. I am trying to drink here.
Nevermind that it was monetary policy, enabling gummint spending in the first place, which produce the widespread balance sheet cluster fucks. But hey...more of the same horsepiss monetary policy will fix everything....right?
Can I have a unicorn while we are at it?
Well, you really didn't address my stated point. I wasn't talking about monetary policy.
But, you obviously haven't bothered to actually read Keynes, Minsky, or Koo so no bother.
I'm sorry...were you making an argument? All your posts read suspiciously like Ad Hominem.
Please try that whole argument thing again. I will be here waiting, and drinking.
Lol, cherry pick the data to make a point.
Austerity is not an elective. I cant believe we have to point this out.
Everyone must read or listen to the book "When Money Dies" to find out what kind of a disaster these boneheads like Krugman are putting the world through
Wait a minute...
You mean that diverting resources away from productive use and toward unproductive use doesn't increase production?
Huh...
Blowing bubbles isn't productive?
Krugman's cat is named Bubbles
Bubbles cat is named shitrock. Thats Canadian for Krugman.
"Blowing bubbles isn't productive?"
But it's part of the GDP.
R-squared of .04?? Why bother?
Austerity for YOU, tax cuts for the rich.
Krugman's chart is BS for other reasons too:
1. 3 years is too short a period to separate signal from noise. You would need to average over several business cycles.
2. If real GDP is growing, wouldn't one naturally expect that to enable government expenditures to grow as a result? For example, if government spending is 20% of GDP and GDP doubles, wouldn't you naturally expect government spending to also double?
3, GDP numbers are fake. For example, if the government spends $100B building a bridge to nowhere, that automatically adds $100B to the GDP, even though nothing of any value was actually produced. And GDP numbers are manipulated to make inflation seem lower, etc.
To see whether borrowing helps GDP, you would need a chart that shows %increase in GDP vs. %interest in borrowing.
The R2 is almost nil on the Steil & Walker chart: it's a meaningless result... You cannot make any inference from such a regression, including that Krugman is wrong.
I would also argue that the Krugman regression with a .31 R2 is not all that exciting either, but an order of magnitude better than the other.
Um...R2 is supposed to be somewhere between 0 and 1. The closer to 0 you are, the less of a linear relationship there is.
Exactly. The R2 indicates what %age the explanatory variable explains changes in the dependent variable. When it is close to zero, the explanatory variable accounts for none of the change in the dependent variable . in other words it doesn't explain anything.
Since government spending is calculated as part of GDP then clearly if it falls GDP falls as well. The real question is, should government spending be part of the GDP figure? I say NO!
Government spending comes at cost to all other sectors of the economy. Furthermore, other than infrastructure, (which could be done outside government) government spending creates nothing, grows nothing but debt, and is usually used to undermine real organic economic growth.
Take out government spending from the GDP calculation and we would have a much better view of the real economy and it's growth.
Inelastic markets must be regulated or government owned.
This is a rule that cannot be denied...it is like gravity. You can test gravity by falling down and bumping your head.
So sorry. INELASTIC MARKETS MUST BE REGULATED OR GOVERNMENT OWNED.
If inelastic markets are not regulated or government owned, then RENTS will be taken by monopoly forces. Anarchy will soon prevail and local toughs will take rents on everything they can. They might even drive around in white Toyota pick-ups like they do in "failed state" Africa.
The real question is how should government be constructed. A parasitized government like what we have now is clearly bad.
A Federalist structure, where the States are a bulwark (pre 17'th ammendment) against centralized Washington power, is an ideal.
Power down low at state and county level, can be responsive to its citizens.
Denigrating all goverment just feeds the private banking corporations - who are the real power behind the scenes. They want to hold money power, and DO NOT WANT GOVERNMENT ISSUING ITS OWN FIAT.
Those that say the U.S. is a Sovereign issuer of Credit are only telling a half truth. (That means you Sumners.) The U.S. government goes along with what the bankers suggest to them. It is a sort of back scratching club, but lets be clear - the creditors or banker elites of international capital, are really in charge. The U.S. loans its military and its legal imprimateur on Federal Reserve (private banking) money.
Power down low at state and county level, can be responsive to its citizens.
if your hypothesis is correct, then currency(ies) creation should then be at the state & county level. anything above (FED or Fed) is monopoly.
Every government is deeper in debt now than they were ladt year. That is not "austerity."
Notwithstanding Krugman's laziness (or deliberate attempt to mislead, you decide) his assertion is correct under certain circumstances because, you know, math. Recall:
GDP = C + I + G + NX
So holding all else equal, yes professor Krugman, GDP will decline if government spending is reduced. So I guess congratulations are in order on proving this tautology. The problem is not whether government spending contributes to GDP but whether citizens' quality of life and opportunities for success are improved by it.
STUPID - if you borrow money to "grow", then later when you (hahaha) pay the money back, that eliminates "grow". Debt just steals from the future.
So more utterly and completely bogus "economics" that pretends something by ignoring the 50,000 pound elephant in the room. I guess you have to be an economist to ignore 50,000 pound elephants and the 50 pound droppings they leave all over the floor.
Economists: Anyone, even the most destitute, can throw an awesome, fantastic, luxurious, fancy party... if some fiat peddler will lend him more fiat. That is not growth, that is waste... and theft.